Gentex Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Gentex Report First Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Josh Oberski, Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to the Gentex Corporation First Quarter 2021 Earnings Release Conference Call. I'm Josh Oberski, Gentex Director of Investor Relations, and I'm joined by Steve Downing, President and CEO, Neil Boehm, Vice President of Engineering and CTO, and Kevin Nash, Vice President of Finance and CFO. This call is live on the Internet and can be reached by going to the Gentex website at www.gentex.com. All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed, or otherwise redistributed. Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call. This conference call contains forward-looking information within the meaning of the Gentex Safe Harbor Statement included in the Gentex Report's first quarter 2021 financial results press release from earlier this morning and is always shown on the Gentex website. Your participation in this conference call implies consent to these terms. Now we'll turn the call over to Steve Downing who will get us started today.

Thanks, Josh. For the first quarter of 2021, the company reported net sales of $483.7 million, which was an increase of 7% compared to net sales of $453.8 million in the first quarter of 2020. During the first quarter of 2021, vehicle production levels were negatively impacted by electronics and other part shortage issues. These shortages were the primary reason for the 12% reduction in North American light vehicle production compared to the beginning of the quarter forecasts. The part shortages also impacted light vehicle production levels in Europe and the Japan and Korea markets, which were each down 3% versus the beginning of the quarter forecast. The part shortages and corresponding change to light vehicle production are estimated to have reduced our revenue in the first quarter by approximately $45 million. Despite these issues, the first quarter of 2021 was the second highest sales quarter in company history, behind only the fourth quarter of 2020. Our guidance for the year included a first quarter that was forecasted to be similar to the fourth quarter of 2020 from a revenue perspective, but first quarter revenues were clearly impacted by the difficulties created by part shortages. During the first quarter of 2021, our primary revenue generating markets of North America, Europe, and Japan and Korea were down 2% on a combined basis, which means our revenue growth of 7% yielded a total outgrowth versus the underlying market of 9%. It is also important to remember that the first quarter of 2020 was negatively impacted by COVID-19 shutdowns, which means the vehicle production levels for the first quarter of 2021 were down 15% in comparison to the first quarter of 2019. However, our revenues grew by 3% when comparing those quarters, which calculates to an 18% outperformance versus the underlying market during that two-year period. For the first quarter of 2021, the gross margin was 37.9% compared to a gross margin of 34.5% for the first quarter of 2020. The gross margin improved significantly on a quarter-over-quarter basis, which was driven by the structural cost savings put in place in the second quarter of 2020, as well as product mix tailwinds related to exterior auto-dimming mirror growth and full-display mirror growth. Gross margins were negatively impacted during the quarter as a result of the part shortages that caused raw material price increases and increased freight costs. The company has once again performed very well in an incredibly difficult operating environment. The chaos created this quarter by component shortages, freight issues, as well as customer plant shutdowns and order changes made scheduling very difficult. But the team was able to not only keep up with customers' orders, but also improve gross margins by 340 basis points versus the first quarter of last year. While the gross margin in the first quarter of 2021 was below our annual guidance range, the majority of that shortfall was driven by the $45 million in lost sales in the quarter. We expect to see further improvement in gross margins based on the higher sales levels that are forecasted for the remainder of the year. Operating expenses during the first quarter of 2021 decreased by 4% to $49.6 million, compared to operating expenses of $51.6 million in the first quarter of 2020. The decrease was primarily driven by the continuation of the structural cost reductions made during the second quarter of 2020, but the lack of international travel and the cancellation of all industry-based trade shows because of the pandemic also contributed to lower operating expenses. Income from operations for the first quarter of 2021 was $133.7 million, which was an increase of 27%. when compared to income from operations of $105 million for the first quarter of 2020. During the first quarter of 2021, the company's effective tax rate was 16.1%, down from 16.6% during the first quarter of 2020. The decrease in the tax rate was driven by increased foreign-derived and tangible income deductions, as well as increased discrete benefits from stock-based compensation. Net income increased 27%, to $113.5 million for the first quarter of 2021, compared to net income of $89.5 million in the first quarter of 2020. The increase in net income was driven by the quarter-over-quarter increase in sales, improved product mix, higher gross margins, and the continued operating leverage as a result of the structural cost savings that were put in place during the second quarter of 2020. Earnings per diluted share for the first quarter of 2021 were 46 cents, an increase of 28% compared to earnings per diluted share of $0.36 for the first quarter of 2020. The increase in earnings per share is the result of the higher net income and a lower diluted share count when compared to the first quarter of 2020. During the first quarter of 2021, the company repurchased 2.8 million shares of its common stock at an average price of $35.46 per share. As of March 31st, 2021, the company has approximately 6.7 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan. The company intends to continue to repurchase additional shares of its common stock in the future in support of the previously disclosed capital allocation strategy, but share repurchases may vary from time to time and will take into account macroeconomic issues, including the impact of the COVID-19 pandemic, market trends, and other factors that the company deems appropriate. I will now hand the call over to Kevin for first quarter financial details.